subject: The Abc Of Car Loans [print this page] India is the worlds sixth largest passenger vehicle producer, and is growing at a very fast pace. According to reports, Indias automotive industry is growing at 16-18%, and has sold nearly 3 million units so far in 2011-12.
Today, when the cost of living seems to be constantly rising, the idea of using your hard-earned money for a luxury product like a car may not appear wise. Some families either forget the idea of buying a car, some postpone it, while others go for car loans.
When you can own something by paying in small instalments, why spend a lump sum amount? It doesnt make sense, especially if you are in the salaried class. What makes sense, however, is a car loan . Theres no doubt that you have to pay interest on it, but the advantages far outweigh the cost.
Advantages of car loans
No need to shell out a lump sum amount
Easy equated monthly instalment (EMI) options
Its a competitive market, and you can get attractive interest rates
Banks offer special benefits for their account-holders, and lower interest rates
Today, both banks and non-banking financial companies (NBFCs) provide easy car loan schemes. They also offer loans on used cars.
Once you are sure of your budget and the car you want to buy, do some research on the current auto loan market. Analyse different car loans offered by banks and NBFCs and their applicable interest rates to get the best bang for your buck.
Types of car loans
Most financial firms offer loans of up to 100% of the on-road cost of cars. In India, there are two types of car loans available secured car loans and unsecured car loans.
In secured car loans, banks and NBFCs ask for collateral or security from the applicant. Unsecured car loans do not require any such collateral or security. However, unlike secured car loans, not everyone is eligible for an unsecured car loan. Also, the interest rates in both cases differ.
But a secured car loan can have some advantages.
Fewer eligibility criteria If you opt for secured auto loans, lenders are not particular about the income of the car loan applicant. In this case, banks consider the value of the collateral more than the income.
Low interest rates Using collateral for a car loan helps you get lower interest rates. But make sure you are looking at the annual interest rate and not the monthly one.
Calculate your interest rates beforehand
Interest rates on car loans can be calculated in two ways the flat rate method and the reducing balance method. In the flat rate method, the principal amount of your car loan remains the same for the entire period -- i.e., interest is charged on the entire amount borrowed. In the reducing balance method, the interest charged is on outstanding principal amount.
When applying for a car loan, you can choose whether you want to repay the loan amount in small monthly instalments or shell out slightly larger sums to save on interest.
You may get a income tax deduction on the interest amount for a car loan if you are using the vehicle for business purposes.
Here are a few things you should keep in mind while availing of a car loan
a) It is very important to have a good credit score, otherwise you may not get the loan, or get a smaller sum.
b) Be regular while repaying the monthly installments. If the repayment tenure is stretched, you may be at risk of becoming a defaulter and end up spoiling your credit record.
c) If you default, the lender can confiscate the borrowers vehicle or collateral.
